South Florida’s beaches and hotels are filled with tourists, traffic jams are clogging nearly very major thoroughfare, and the region’s airports are doing a brisk business.
They’re the types of scenes one would want after two banks in California and New York failed nearly in unison a week ago, rattling the U.S. and foreign financial markets in the process.
The institutional failures, coupled with the specter of a nagging high inflation rate, loom as a double whammy for not only the nation, but for statewide and regional economies that have enjoyed a charmed recovery after the COVID-19 pandemic all but crushed their life’s blood, the tourism industry. Despite the region’s rebound from COVID and reputation for resiliency, there are still questions about how rough the road will be ahead.
“It’s amazing we’re talking about bank failures today — it’s a shock,” said Noah Breakstone, managing partner and CEO of BTI Partners, a diversified real estate services and development firm. “There are many cross winds in today’s market and those winds are very turbulent right now.”
“There is uneasiness in the market,” Breakstone added. “We don’t see it in the immediate reactions of people going to the restaurants or people who have plans for Spring Break.”
It’s among lenders who are “hesitant right now” to help fund new developments. They want those winds — namely in the form of still high interest rates, uncertainties in the technology sector, supply chain problems, high construction costs and Russia’s war on Ukraine — to calm down.
Others say the situation, while concerning, is not so dramatic,
“I think it’s been business as usual,” said Mason Williams. managing director and chief investment officer at Coral Gables Trust, which has offices in Coral Gables, Fort Lauderdale, Boca Raton and West Palm Beach. “The service sector has still got a pretty good inflation problem we’re dealing with, and that’s extremely sticky.”
But tourists are still coming here, he said. “Whatever it costs to get here via a plane or whatever, people are paying up for it.”
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Most financial and development executives and economists interviewed this week agreed the region has enough resilience to retain its status as a magnet for new business and economic growth. But they are hoping that Federal Reserve leaders focus on reversing inflation sooner rather than later while regulators deal with whatever unknown problems still loom in the banking industry.
Joseph Luzinskl, senior managing director of Development Specialists Inc., a restructuring advisory firm. characterized the banking problems as a “sector crisis” driven by the technology industry, “not a systematic banking crisis.”
“I don’t think any of our local banks have a lot of exposure in that [technology] space,” he said, although Silicon Valley Bank did open a branch on Miami’s Brickell Avenue in 2021.
“I think the regulators and the government were probably wise to realize that if they didn’t backstop the deposits, it could have created a literal firestorm among the big businesses that are not startups,” Luzinski said. “The good news is the government probably made a good choice to step up and cover that. The bad news is, I’m not sure where the bottom is at the moment.”
In the meantime, inflation needs some aggressive tending, argued Sean Snaith, director of the University of Central Florida’s Institute for Economic Forecasting in Orlando.
“They need to keep their eye on the prize and keep their eyes on the [inflation] target levels,” he said.
The inflation rate is nowhere near the Fed’s longstanding 2% target, but has been moving in the right direction for the last eight months. In February, consumer prices rose 6% from the year before, down from the 6.4% year-over-year increase for January. Last June, it was 9.1%.
The bank collapses complicated things, raising financial market concerns this week that another round of Fed interest rate hikes could cause more trouble.
On Thursday, U.S. Treasury Secretary Janet Yellen reiterated at a congressional hearing that depositor money is safe and the banking system “remains sound.”
Throughout the week, local financial industry executives proclaimed Florida banks and other firms as safe. Many around the state were on the phone to calm client nerves. But that didn’t stop some depositors from spreading money around from one financial institution to another.
“Our clients feel totally safe,” said Williams, whose company is not a bank but a wealth management firm. “We have many ways we can protect their capital from these banking issues that pop up. We are the beneficiaries of new business right now.”
Among the protective methods: Buying high quality corporate bonds and U.S. Treasuries.
But not everyone has the wherewithal to plunk down large amounts of money in bonds, which is why depositors in general breathed a sigh of relief last week when the Federal Deposit Insurance Corp. removed the $250,000 insurance cap on deposits at the two failed banks, Silicon Valley Bank and Signature Bank, which reopened for business last Monday. Regulators also created a new avenue for other banks to borrow funds if they needed them.
Generally speaking, people who have committed themselves to everything from buying real estate to relocating to South Florida are staying the course, brokers and development advocates say.
“There are a lot of people that will continue to come to South Florida in different capacities,” said Peggy Olin, CEO and founder of NewWorld Properties in Miami and Fort Lauderdale.
Olin said she has been seeing some people diversifying their assets from securities to real estate. Asked if anyone has backed out of a proposed deal, she replied: “I personally have not experienced that.”
However, “there has been a temporary hiccup,” said Craig Studnicky, CEO of ISG World luxury real estate firm in Miami.
“We’re getting a lot of questions starting with, ‘is this ‘08 all over again?’” a reference to the national recession caused by a nationwide housing collapse more than a decade ago. The other question: “Will this affect mortgage rates?”
“It’s nothing like ‘08,” Studnicky said, pointing to Thursday’s bank industry move to shore up the flagging First Republic Bank.
“The silver lining is it may be putting the brakes on higher rate increases,” he added. “The inflation numbers are now around 6%, which is more or less where [economists] were looking for them to be by the end of the first quarter.”
Despite the upheaval, he said. there has been no shortage in phone calls from people wanting to buy property. “I’m not seeing any pullback in interest.”
The Greater Fort Lauderdale Alliance, the public-private business development arm of Broward County, has not seen any reversals in company commitments to relocate to the county, either from inflation or the banking crisis, said Bob Swindell, president and CEO.
“A couple of projects are going to be a little bit of a challenge,” he said. “But I haven’t heard anybody say they are slowing down.”
John Wensveen, executive director of the Alan B. Levan NSU Broward Center of Innovation in Davie, said he has not heard of startup companies “having their funds pulled at this point.”
“The pitches are still moving forward,” he said. “The investor discussions are still moving forward. I’m an accredited investor and I’m being reached out to right now.”
But Luzinski of DSI said the banking upheaval is likely to cause “a lot of technology companies or a lot of people who were contemplating investing in technology companies to pull back on the reins.”
Swindell led a delegation of more than 100 Broward area business and government leaders, including Wensveen, on a fact-finding trip to San Diego this week, not to prospect for new business, but to learn how their counterparts position the city and San Diego County to attract new companies.
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“They’re dealing with the same thing we are dealing with,” Swindell said, “How do you build a sophisticated brand? How do you incorporate that in communicating your quality of life? We haven’t reached our pinnacle yet, and San Diego feels the same way.”
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But Swindell said that no matter where a company goes or a developer builds, inflation is going to make them pay more to set up shop in new locations.
“Your rates to borrow money to do a project have almost doubled,” he said. “I think it will impact some development plans.”
If and when a recession hits the general economy, “in South Florida it’s going to be short-lived,” Swindell said, mainly because of the region’s international influence and “vibrancy.”
As for the banking troubles, Williams believes they will pass without wrecking the financial system.
“In the end I don’t think this is going to be a major bring-down-the-whole system event,” he said.
Staff writer David Lyons can be reached at dvlyons@SunSentinel.com